This Week in Dairy April 28 – Lee Mielke

This Week in Dairy April 28 – Lee Mielke

Lee Mielke is a veteran dairy journalist and broadcaster, currently carried in a dozen Ag newspapers nationally. This column is prepared especially for the readers of DairyBusiness. Based in Lynden, Wash., he can be reached by email [email protected] or by phone 360.201.4033.This Week in Dairy April 28 - Lee MielkeThere’s still plenty of dairy products on hand. The March Cold Storage report put the March 31 butter inventory at 272.5 million pounds, up 2.6 million pounds or 1 percent from February and 29.4 million or 12.1 percent above March 2016. A revision lowered the original February stocks total by 12.7 million pounds.

American type cheese amounted to 802.7 million pounds, up 29.9 million pounds or 3.9 percent from February and 76.9 million or 10.6 percent above a year ago. The total cheese inventory reached a record 1.292 billion pounds, up 37.2 million pounds or 3.0 percent from February and 101.1 million or 8.5 percent above March 2016. The report is seen bearish on cheese and slightly bullish on butter.

CME dairy prices didn’t show a lot of initial reaction to the Cold Storage data but many of the regular traders were at this week’s American Dairy Products Institute (ADPI) conference in Chicago instead of their offices.

Block Cheddar closed the last day of trading in April at $1.48 per pound, down 6 1/2-cents on the week but 11 cents above a year ago. The barrels closed at $1.4175, down a penny on the week, a half-cent above a year ago, and narrowed the spread to 6 1/4-cents. One car of block and 16 of barrel traded hands on the week at the CME.

FC Stone’s Dave Kurzawski reported that the message he got at the ADPI conference was that there’s plenty of cheese production going on, particularly in the upper-Midwest, but “we expect demand has improved from a month ago.”

He said “There seemed to be two camps of thought at the ADPI conference: either people were bearish or they we’re neutral. We didn’t hear much in the way of bullish, at least anytime soon. For better or worse, trade uncertainties in general and milk glut issues in Wisconsin in particular are leading indicators of U.S. dairy market sentiment at large right now. So the views of dairy market prices are, we could say, largely bearish,” according to Kurzawski.

He added that “The President’s willingness to work with Canada and Mexico was like a breath of fresh air to dairy market participants who have long dealt with anti-trade rhetoric and uncertainty this year.”

Fresh cheese is in fact in tight supply, according to the April 21 Dairy and Food Market Analyst (DFMA), and “blocks less than 30 days old are the ones that trade at the CME. Cheese inventories are huge, but much of this product can’t come to the Exchange.”

Dairy Market News (DMN) says the cheese market tone is “uncertain” and cheese production for the most part continues to match abundant milk supplies, in fact production schedules in some plants were at 100 percent. Milk continues to flow into cheese vats with prices $1.50 to $5.50 under Class.

Some producers report that orders have noticeably improved the past two to three weeks and some pizza cheese makers report gains in demand but slightly quieter than they were last year. Cheese inventories are also long.

Milk is plentiful in the West and so is cheese output. Domestic demand is stable in most of the region, according to DMN. Barrel sales are slowly increasing as grilling season is getting close. Commodity type cheese continues to be readily accessible to end-users while high quality cheese is harder to get. Buyers have abundant supplies, and are hesitant to take additional spot loads, with many limiting their activities hoping that prices will soon be more favorable.

Spot butter finished Friday at $2.1050 per pound, up 1 1/2-cents on the week but 1 1/2-cents below a year ago. Twenty carloads traded hands on the week.

Cream remains available for churns in the Central region but Class II producers continue to show increased interest in cream. Butter demand ranges from steady to slightly strong but inventory is steady to building.

Looking westward, DMN reports that milk output has been off a little in some of the butter production states but cream destined for the churn has been in good supply and churns remain active to deal with the abundant cream. Some butter makers are trying to hold back on processing to keep butter inventories in check.

Cash Grade A nonfat dry milk finished Friday at 86 3/4-cents per pound, up 11/4-cents on the week and 9 1/4-cents above a year ago, on 28 cars sold.

The DFMA reports that orders for powder from Mexico picked up the week of April 17, according to several exporters. “Following an uptick in prices at the Global Dairy Trade auction, there was a surge in buying interest. The rising value of the Mexican Peso is contributing. A firmer peso gives Mexican buyers more purchasing power; the Peso reached a five month high against the U.S. Dollar this week and is up 14 percent since January when it bottomed in value.”

Unfortunately, even though U.S. milk output slowed some in March, the DFMA reports that milk output is outstripping manufacturing capacity. “Milk is now hitting the ground in the Northeast, Mideast, Michigan, and New Mexico, according to contacts with views of the milk supply.”

It added a somber warning; “In four out of the top six producing countries in Europe, milk production is now above prior year levels, including in the United Kingdom, the Netherlands, Poland, and Italy. Be forewarned: Within a month, Europe will again be producing milk in excess of a year ago.”

Looking “down under,” Dairy Australia reports February milk production was 10.0 percent below February 2016 and July 2016 through February 2017 cumulative production is down 8.4 percent, according to DMN.

New Zealand is still recovering from two cyclones in the last several weeks, according to DMN, and the important dairy area of Waikato was hit hard.

March output improved, up 9.2 percent, according to the Daily Dairy Report. “New Zealand’s milk supply has started to decline seasonally as the industry heads into the offseason,” the DDR stated. “Season to date, milk intake through March remains 1.23 percent lower than the previous season, but the gain is much better than earlier forecasts that suggested output could drop 3-5 percent.”

Back home; higher corn and alfalfa hay prices and a sharply lower All-Milk price pulled the milk feed price ratio lower for the third consecutive month. The March ratio is 2.39, down from 2.61 in February, but is up from 2.12 in March 2016, according to the Agriculture Department’s latest Ag Prices report.

The index is based on the current milk price in relationship to feed prices for a dairy ration consisting of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. In other words, one pound of milk today purchases 2.39 pounds of dairy feed containing that blend.
The March U.S. average All-Milk price was $17.30 per hundredweight (cwt.), down $1.20 from February but $2.00 above March 2016.

New Mexico again scored the lowest, at $15.70, down $1.40 from February but $1.10 above a year ago. California was right behind at $15.73, down $1.71 from February but $1.80 above a year ago and $2.27 below Wisconsin’s $18.00. That’s down a dollar from February but $2.20 above a year ago.
March corn averaged $3.49 per bushel, up 5 cents from February but 7 cents per bushel below March 2016. Soybeans averaged $9.69 per bushel, down 17 cents from February but $1.13 per bushel above March 2016. Alfalfa hay averaged $135 per ton, up $6 from February but $4 per ton below a year ago.
Looking at the cow side; the report shows the March cull price for beef and dairy combined averaged $69.50 per cwt., up $4.60 from February, $10.50 per cwt. below February 2016, and $2.10 below the 2011 base average of $71.60.

Prices received for milk cows in April averaged $1,640.00 per head, up $20 from January but $190 below April 2016. Wisconsin averaged $1710 per head, down $20 from January and $200 below April 2016. The California average, at $1600 per head, was unchanged from January but $200 below March 2016.

The latest Crop Progress report shows 17 percent of the U.S. corn crop is in the ground, as of the week of April 23, up from 6 percent the previous week, down from 28 percent a year ago, and 1 percent behind the five year average.

Eleven percent of the cotton is planted, up from 8 percent the week before, 1 percent behind a year ago and 1 percent behind the five year average.

Looking backwards, USDA reported U.S. cheese production totaled 12.2 billion pounds in 2016, up 2.8 percent from 2015. Wisconsin remained the leader at 3.24 billion pounds or 26.6 percent of that total. California followed at 2.51 billion pounds.

Italian varieties totaled 5.29 billion pounds, up 4.1 percent from 2015 and accounted for 43.5 percent of total U.S. cheese output. Mozzarella accounted for 77.7 percent of the Italian category, with Wisconsin, again, the leading producer.

American type cheese output hit 4.76 billion pounds, up 1.3 percent from 2015 and 39.1 percent of total cheese. Wisconsin was the leading American producer.

Butter churns spit out 1.84 billion pounds, down 0.6 percent from 2015. California accounted for 30.6 percent of the U.S. total.

Nonfat dry milk output totaled 1.75 billion pounds, down 3.8 percent, and skim milk powder hit 559 million, up 25.3 percent. Dry whey totaled 955 million pounds, down 2.3 percent from 2015.

Cooperatives Working Together (CWT) accepted six requests for export assistance the week of April 24 from member cooperatives to sell 740,753 pounds of Cheddar cheese to customers in Asia and the Middle East. The product has been contracted for delivery through July and raised CWT’s 2017 export sales to 29.16 million pounds of American-type cheeses, and 1.43 million pounds of butter (82 percent milkfat) to 14 countries on four continents.

In politics, Sonny Perdue was confirmed as Agriculture Secretary. The National Milk Producers Federation (NMPF) stated in a press release that “Secretary Perdue knows that dairy farmers depend on export markets around the world and closer to home, which is why it is important for USDA to insist on preserving market access to key customers in Mexico, and demand that Canada plays by the international trade rules to which it has already agreed.”

“We also need Secretary Perdue’s support to help develop new dairy export markets in Japan and elsewhere,” NMPF stated, and “Secretary Perdue has expressed support for improving the dairy Margin Protection Program so that it can serve as the effective safety net it was intended to be.”

Meanwhile a bipartisan group of 68 House members wrote to President Donald Trump urging him to insist that Canada comply with its dairy trade commitments, including those under the North American Free Trade Agreement (NAFTA). Trump has given some mixed signals regarding his commitment to NAFTA.

A NMPF press release stated; “At a time when questions are arising about the future of the U.S. role in NAFTA, the NMPF, the U.S. Dairy Export Council (USDEC) and the International Dairy Foods Association (IDFA) said the 25-year-old pact is a critically important agreement that needs to be modernized, not withdrawn from.”

They also praised the congressional letter’s focus on ways to improve upon the existing NAFTA trade relationship.” The letter to Trump followed a call between him and Canadian Prime Minister Justin Trudeau during which dairy exports were among the key topics discussed.

“We very much appreciate the bipartisan support from Members of Congress on this important issue. As the U.S. reviews the value of NAFTA, it’s essential that our trade negotiators focus on preserving dairy trade with Mexico and other key markets, while challenging barriers such as Canada’s systematic abuse of trade rules and tools,” said NMPF’s Jim Mulhern. He said that Canada’s new pricing policy “uses a government-administered system to hurt the U.S. dairy industry, undercutting our farmers’ exports and threatening to cause great damage to world dairy prices by dumping Canada’s surplus on the world market.”

USDEC CEO Tom Vilsack warned that “U.S. dairy companies and the workers they employ across rural America compete in global markets on a daily basis. They should reasonably be able to expect that others are also going to play by the rules. When our trading partners hold up their end of the bargain, as we have seen Mexico do for dairy, trade benefits our farmers, workers and companies. But to preserve that positive impact, it’s essential that we hold countries accountable when they walk the other direction as Canada has chosen to do.”

Michael Dykes, D.V.M., president and CEO of IDFA, added; “We appreciate the efforts of each member of Congress who signed the letter, recognizing the importance of our exports to Mexico while noting that Canadian dairy policies are directly hurting American exports. As we conveyed to our Mexican partners in our visit there earlier this year, NAFTA is very important to both our countries and has yielded strong benefits for agriculture. To build upon that track record, we need to address unfinished business such as the remaining tariff and nontariff trade barriers that Canada has pursued.”

The letter cited the importance of exports to the U.S. dairy industry, noting that approximately 15 percent of U.S. milk production amounting to roughly $5 billion a year leaves the country.

This Week in Dairy April 28 – Lee Mielke

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